What Is Austerity?

What Is Austerity?

Austerity policies are nothing new. But talk about them in the news has recently escalated. In response to its ongoing debt crisis, the Greek government is preparing to implement austerity measures aimed at helping the country regain its financial footing. If you didn’t major in economics or you have no clue what austerity means, read on to find out how this fiscal program works.

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Austerity: A Definition

Trust us, austerity isn’t as complicated as it sounds. Austerity is a type of economic policy that governments use to deal with budget deficits. A country faces a deficit whenever it’s using more money than it’s earning from tax dollars.

By taking on an austerity package, a government hopes to reign in its spending, improve the status of its economy and avoid defaulting on its unpaid debt. Governments usually take on austerity measures in order to appease their creditors. In exchange, these lenders agree to bail out countries and allow them to borrow more money.

If you look up the word austere in the dictionary, you’ll see that it means severe, grave, hard, solemn and serious. Indeed, austerity is nothing to joke about.

Austerity Measures

What Is Austerity?

Austerity plans normally involve increases in different taxes, (property taxes, income taxes, etc.) budget cuts or a push to incorporate both. Government workers could lose their jobs or see their wages and benefits either decline or become stagnant. Hiking up interest rates, adding travel bans and keeping prices at a fixed level could be other strategies put in place to reduce spending.

Naturally, austerity measures typically aren’t viewed in the best light because they mean that there might be fewer government programs available to the public. Aid for veterans and low-income families, healthcare coverage and pensions are some of the benefits that normally take a hit when a country’s using an austerity package. Government services that aren’t eliminated might not be as comprehensive or as beneficial as they once were.

As you can see, in an austere environment, conditions are tighter overall. Historically, austerity has been implemented in the US during tough times including World War I, World War II and the Great Recession of 2008.

Greece’s new austerity package – which government lawmakers finally accepted in July 2015 – will feature less government funding, higher taxes and cuts to pension plans. As a result of this deal, the country was allowed to begin talks with its creditors about a third bailout.

Related Article: All About the Greek Debt Crisis

The Problems With Government Austerity 

Experts on the economy tend to go back and forth about how effective austerity can be. Some believe that instead of turning to austerity, the government should pump out more money and borrow as much as possible if an economy is on the rocks.

From a political standpoint, austerity is often controversial and results in riots and demonstrations. Anti-austerity protests erupted in Greece, where quite a few folks say that past austerity programs have only made social and economic conditions worse.

Beyond slowing down the economy, an austerity bill can cause a country to remain in its debt crisis, particularly if it’s in the midst of a recession. As fiscal austerity decreases spending, GDP can go down while unemployment goes up. Consumers can get nervous and stop spending and investing their own money.

In short, austerity policies can make life even more difficult for people who are already struggling. That’s why governments tend to turn to them as a last resort if other strategies aren’t working.

Why Austerity Might Not Be So Bad

What Is Austerity?

Notable European creditors have argued that austerity can be beneficial to a country’s long-term economic state. For instance, the International Monetary Fund (IMF) has previously reported that austerity has done more damage than anticipated. But the European Central Bank released a paper saying that austerity has been helpful, at least for some of the weaker eurozone countries.

In fact, austerity has helped strengthen the economies in European countries like Latvia and Iceland. Although Spain’s unemployment remains high, its economy is in better shape overall. Ireland has made considerable progress as well toward rebuilding its economy.

Proponents of austerity policies say that they can make investors feel more optimistic when a country is being run more responsibly. Austerity has the potential to bring a shrinking economy back to life as everyday citizens invest in the private sector instead of relying on support from the federal government.

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The US used austerity measures between 2010 and 2014. Not only were our policies harsher than those employed by the governments in the UK and other European nations, but our economy fared better than theirs.

The Takeaway

The point of austerity is to tighten the government’s belt, bring a country’s debt back down to a more manageable level and stimulate an economy that has stopped growing. Countries generally try to meet these goals by cutting spending and raising taxes.

The debate over whether austerity works continues but one common theme has emerged. Timing matters. Some critics suggest that cutting too much too quickly during a recession can be painful. When introduced more slowly, however, (or when the economy is doing very well,) austerity measures can turn things around.

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Tips to Consolidate Credit Card Debt

Tips to Consolidate Credit Card Debt

Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the issuer.

If left unchecked, extensive amounts of credit card debt can cripple your finances. The good news is there are many ways to handle debt, though each requires a dedicated effort on your part. But if you can manage to consolidate credit card debt, you will reduce your burden relatively quickly. In the process, you’ll avoid the exorbitant interest rates that accompany most credit cards. Below we take a look at some of the most effective techniques you can use to make this goal a reality.

Find Out Your Credit Score

Before you can work on improving your credit and minimizing your debt, you have to know where you currently stand.

Many credit card issuers allow cardholders to see their FICO® credit score free of charge once a month, so check out if any of your cards include that free credit score. The three major credit bureaus – TransUnion, Experian and Equifax – also give out free annual credit reports. If that’s not enough, websites like Credit Karma™ and Credit Sesame provide a free look at your credit score and reports as well.

It is vital to review your credit report with a fine-tooth comb to ensure the accuracy of the information. If you find errors be sure to let the credit bureau in question know so the issue can be eradicated as soon as possible.

Zero Interest Balance Transfer Cards

Although it might seem counterintuitive to apply for another credit card to lessen your debt, a zero interest balance transfer card could really help. These cards typically include an introductory 0% balance transfer Annual Percentage Rate (APR) for six months or more. This ultimately allows you to move debt from one account to another without incurring more interest. However, once the introductory offer concludes, any leftover balances will revert to your base APR.

These offers aren’t totally free, though. Most cards also charge a balance transfer fee that’s usually between 3% and 5% of the transfer. Even with this initial payment, you will almost always still save money over leaving your debt where it stands currently.

If you want to consolidate credit card debt, here are three different balance transfer credit cards you could apply for, with varying introductory interest rates and transfer fees:

Balance Transfer Credit Cards Card Intro Balance Transfer APR Balance Transfer Fee Chase Slate 0% APR for first 15 months; then 16.49% to 25.24% Variable APR, depending on your creditworthiness No fee for first 60 days; then $5 or 5% of each transfer, whichever is greater Citi Double Cash Card 0% introductory APR for 18 months from date of first transfer when transfers are completed within 4 months from date of account opening; then 15.49% to 25.49% Variable APR, depending on your creditworthiness $5 or 3% of each transfer, whichever is greater BankAmericard® credit card 0% APR for first 15 billing cycles; then 14.49% to 24.49% Variable APR, depending on your creditworthiness No fee for first 60 days; then $10 or 3% of each transfer, whichever is greater Take Out a Personal Loan

Tips to Consolidate Credit Card Debt

The thought of taking out another loan probably doesn’t sound too appetizing to consolidate credit card debt. But a personal debt consolidation loan is one of the speediest ways to rid yourself of credit card debt. More specifically, you can use it to pay off most or all of your debt in one lump sum. That way, your payments are all merged into a single account with your lender.

The APR and length of the offered loan and the minimum credit score needed for approval are the main factors that should go into your final decision on a lender. By concentrating on these three components of the loan, you can map out what your monthly payments will be. As a result, you can more easily implement them into your financial life.

Applying for a personal consolidation loan can have a detrimental effect on your credit. Unfortunately, most institutions will run a hard credit check on you prior to approval. However, many online lenders don’t do this, which might ease your mind depending on the severity of your debt situation.

These loans are available through a wide variety of financial institutions, including banks, online lenders and credit unions. Here are a few examples of some of the most common debt consolidation lenders:

Common Debt Consolidation Lenders Banks Wells Fargo, U.S. Bank, Fifth Third Bank Online Lenders Lending Club, Prosper, Best Egg Credit Unions Navy Federal Credit Union, Unify Financial Credit Union, Affinity Federal Credit Union Auto or Home Equity Loan

If you own assets like a home or car, you can take out a lump-sum loan based on the equity you hold in them to consolidate credit card debt. This is a great way to reuse money you paid toward an existing loan to take care of your debt. When paying back your auto or home equity loan, you’ll usually pay in fixed amounts at a relatively low interest rate. Even if this rate isn’t great, it’s likely much better than any offer you’d receive from a card issuer.

Equity loans are technically a second mortgage or loan, meaning your house or car will become the loan’s collateral. That means you could lose your house or car if you cannot keep up with your equity loan payments.

Create a Budget

Tips to Consolidate Credit Card Debt

To build a budget, you first need to figure out your approximate monthly net income. Don’t forget to take into account taxes when you’re doing this.

You can then start subtracting your variable and fixed expenses that are expected for the upcoming month. This is where you will likely be able to identify where you’re overspending, whether it’s on food, entertainment or travel. Once you’ve completed this, you can begin cutting back where you need to. Then, use your surplus cash to pay off your debt one month at a time.

It shouldn’t matter if you’re dealing with substantial credit card debt or not. A monthly spending budget should always be a part of how you manage your finances. While this is likely the slowest way to eliminate debt, it’s also the most financially sound. At its core, it attempts to fix the problem without taking funding from an outside source. This should leave very little financial strife in the aftermath of paying off your debt.

Professional Debt Counseling

Perhaps since you’ve found yourself in serious debt, you feel like you want professional help getting out of it. Well the National Foundation for Credit Counseling® (NFCC®) is available for just that reason. The NFCC® has member offices all around the U.S. that are certified in helping you consolidate credit card debt.

These counselors won’t only address your current financial issues and debt. They’ll also work to create a plan that will help you avoid this situation again in the future.

Agencies that are accredited by the NFCC® will have it clearly displayed on their website or at their offices. If you’re not sure where to look, the foundation created an agency locator that’ll help you find a counselor nearby.

Borrow From Your Retirement

Taking money early from your employer-sponsored retirement account obviously isn’t ideal. That’s means borrowing from your retirement is a last-ditch alternative. But if your credit card debt has become such a handicap that it’s affecting all other facets of your life, it is a viable option to consolidate credit card debt.

Because you are technically loaning money to yourself, this will not show up on your credit report. Major tax and penalty charges await anyone who has trouble making payments on these loans though. To make matters worse, if you quit your job or are fired, you’re typically only given 60 days to finish paying it off to avoid incurring a penalty.

Tips To Consolidate Credit Card Debt

  • If you take the time to come up with a budget, don’t let it go to waste. While you might find it tough to stick to, especially if you’re trying to cut back, it is the best way to manage your money correctly. Even if a budget becomes habit, stay vigilant with where your money is being spent.
  • Although a financial advisor will cost money, he or she might be able to help you keep your finances in check while ultimately helping you plan for the future as well. However, if this isn’t an option for you financially, stay on track with your NFCC® debt counselor’s plan.
  • There are so many ways to gain access to your credit score that there’s virtually no excuse for not knowing it. It doesn’t matter if you do it through one of the top three credit bureaus, FICO® or one of your card issuers. Just remember to pay attention to those ever-important three digits as often as possible.

Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the issuer.

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I’ll Retire With a Military Pension and Want to Move to a Bicycle-Friendly, Beer-Loving Place—So Where Should I Go?

A beer garden at one of Knoxville, Tenn.'s craft brewers.Visit Knoxville

Dear MarketWatch,

I have five years until I retire. I have a nest egg of $1 million and will also have a monthly military pension of approximately $6,000, and Social Security on top of that.

I like cycling 60 miles a day and want to retire in a place that is known for good, safe cycling. I hate hot humid weather and don’t want a lot of snow. I love craft beer. And I would prefer a place with limited or no income tax on a military pension.

Where should I retire? Fort Collins, Colorado, and Asheville, N.C., seem like good places, but the cost of living in Fort Collins seems above average, and I am told Asheville has a lack of housing.

What other places should I consider and how do they compare with the two locations already mentioned? My wife likes the sound of “the Hill County in Texas,” but she knows the heat is bad.

Charles

 

Dear Charles,

The Fort Collins and Asheville areas sound lovely. And popular places tend to be more expensive — that’s just the reality of supply and demand. If that’s where you want to be, the trade-off might be as simple as a smaller house/condo/rental.

You also could seek cheaper housing a bit further from these two cities — Greeley, Colo. (don’t believe everything about the smell), or Hendersonville, N.C. (recommended here), for example. Or what about Raleigh-Durham, with the American Tobacco Trail as the trail network’s spine? You’d have to accept more humidity with that one, however.

I started my search by looking at the League of American Bicyclists’ bicycle-friendly communities. Five, including Fort Collins, are platinum. Housing in only one is cheaper than Fort Collins, but I don’t think you’ll appreciate the snow in Madison, Wis. I ruled out Davis, Calif., because the state is one of seven that taxes military retirement pay in full. (It doesn’t tax Social Security checks, though.)

So I looked further down the list while taking weather and taxes into consideration. You can estimate your state taxes using this calculator, but you may want to verify that with a tax professional.

I’ve described three suggestions for you below. Boise (a silver-level BFC) and Corvallis, Ore. (a gold BFC), recommended here and here, may be other places to consider.

As always, taxes, housing costs, the number of craft brewers and even bike-friendliness can change over the next five years. And some of these places may not mesh with whatever your wife’s wish list includes.

Another piece of advice: Be sure to experience a place in all weather, or at least the worst season, to make sure it’s a fit. Data can only tell you so much. Consider renting, at least at first. Your pension and Social Security may cover your regular expenses, but don’t make yourself house-poor.

Equally, state income taxes aren’t always everything. Virginia, which does tax retirement pay, is rated the best state for military retirees according to this survey and scores second-highest for the “economic environment,” behind Alabama.

Why not check out your shortlist on a bike tour?

A kayaker and a paddleboarder in Mead’s Quarry, part of the Ijams Nature Center in the South Knoxville section of Knoxville, TN.
A kayaker and a paddleboarder in Mead’s Quarry, part of the Ijams Nature Center in the South Knoxville section of Knoxville, TN.

Justin Fe/Visit Knoxville

Instead of Asheville … Knoxville, TN

Asheville is one of America’s premier craft beer destinations, but Knoxville has an above-average number of breweries too. By moving here, you’d get a city twice the size (nearly 190,000 people) and the state’s flagship university (33,000 students and the potential for practically free classes starting at age 65). You’d be in a valley with the Smoky Mountains visible to the east; Asheville’s elevation is more than 1,000 feet higher. Average July highs would be a couple of degrees warmer than in Asheville, and January highs would be a couple of degrees cooler, but a little less snow.

Knoxville is a bronze-level bike-friendly community, as is Asheville. Check out bike rides that tour the breweries. You can also join BikeWalk Knoxville on one of its rides to explore the city.

Tennessee has been reducing its state income tax and will abolish it at the end of 2020. North Carolina will give you a more modest break on your pension and tax your Social Security check.

Housing is much cheaper in Knoxville than in Asheville, whether buying or renting. Here’s what’s for sale in Knoxville now, using listings from Realtor.com (which, like MarketWatch, is owned by News Corp.

And here’s Asheville.

You can flip to the rental market for both.

———

A sunrise near Wenatchee, WA
A sunrise near Wenatchee, WA

Wenatchee Valley Chamber of Commerce

Instead of Fort Collins … Wenatchee Valley, WA

The Wenatchee Valley is a bronze-level bicycle-friendly area of 67,000 people in central Washington, so far from Fort Collins’ platinum status and even smaller than Asheville. The city of Wenatchee has nearly 35,000 residents, and the narrow, 50-mile-long Lake Chelan is an hour away. This is an agricultural area — fruit is a big crop, and there’s wine, too — so you should have plenty of rural roads to pedal on. Yes, you’ll also find craft brewers

Washington state doesn’t have an income tax, so Wenatchee checks that box. Colorado offers some tax breaks on both military pensions and Social Security.

The Wenatchee area is more affordable and less busy than Fort Collins, which you should think of as a cheaper(!) version of Boulder. Fort Collins has 170,000 people, plus there are almost another 80,00 in neighboring Loveland and 110,000 in Greeley. The plus side is that it gives you a broad range of neighborhoods and prices.

Average summer highs in Wenatchee are in the mid-80s; average highs in the winter are just above freezing. Fort Collins is a touch cooler in the summer and warmer in the winter. You’d get little rain, unlike cities on the other side of the Cascade Mountains, but expect 7 to 9 inches of snow on average in December and January. Despite its higher average temperatures, the snow starts earlier in Fort Collins, lasts longer and you get more of it.

You will find plenty of retirees around Wenatchee. Nearly 20% of Chelan County’s 77,000 residents are 65 or older, according to the Census Bureau. Fort Collins comes with Colorado State University.

If Wenatchee looks too pricey, check out Spokane, another bronze-level BFC. It’s far bigger, with about 225,000 people (and 525,000 in the county), and has more craft brewers. The drawback is more snow. If you want to go smaller, Ellensburg, about 90 minutes south of Wenatchee, is a silver-level BFC and a touch cheaper than Wenatchee.

Here’s what’s on the market in Chelan County.

This is what the housing market looks like in Fort Collins, Loveland and Greeley.

Indiana University's Little 500 bike race.
Indiana University’s Little 500 bike race.

Visit Bloomington

Wild card: Bloomington, IN

If you like older biking movies, you know this town of 85,000 people from “Breaking Away” and the Little 500 bike race. But did you know the home of Indiana University is a gold-level bike-friendly community?

And we’re not talking about just biking past miles and miles of corn fields on those 60-mile rides. (That would be retiring near rival Purdue University in West Lafayette, a bronze-level community.) Southern Indiana is hilly — test yourself on the brutal Hilly Hundred weekend ride outside of town during peak foliage. Others might prefer the all-terrain Gravel Grovel through the Hoosier National Forest. To chill, take the 9.2-mile trail that runs from the north end of town to the limestone quarry on the south side.

For beer, check out Upland Brewing, which won a gold medal at the Great American Beer Festival in 2019. Six more gold-medal winners are in Indianapolis an hour to the north.

Indiana is changing how it taxes military retirement pay; your pension should be exempt as of 2021. The state also doesn’t tax Social Security income.

Temperatures in Bloomington reach an average of 86 in July, while January means an average high of 37 and about 5 inches of snow. If you want to hang out on campus, seniors get 50% off tuition, and the break starts at age 60.

Here are homes on the market now.

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Source: realtor.com

A Guide to Qualified Retirement Plans

woman on computer with notebook

Saving for retirement is an important financial goal and there are different options when it comes to where to invest. A qualified retirement plan can make it easier to build wealth for the long term, while enjoying some significant tax benefits.

Qualified retirement plans must meet Internal Revenue Code standards for form and operation under Section 401(a). If you have a retirement plan at work, it’s most likely qualified. But not every retirement account falls under this umbrella and those that don’t are deemed “non-qualified.”

So just what is a qualified retirement plan and how is it different from a non-qualified retirement plan?
Understanding the nuances of these terms can help you better shape your retirement plan for growing wealth.

What Is a Qualified Retirement Plan?

Qualified retirement plans allow you to save money for retirement from your income on a tax-deferred basis. These plans are managed according to Employment Retirement Income Security Act (ERISA) standards.

The IRS has specific rules for what constitutes a qualified retirement plan and what doesn’t. Public employers can set up a qualified retirement plan as long as these conditions are met:

•  Employer contributions are deferred from income tax until they’re distributed and are exempt from social security and Medicare tax
•  Employer contributions are subject to FICA tax
•  Employee contributions are subject to both income and FICA tax

Following those guidelines, qualified retirement plans can include:

•  Defined benefit plans (such as traditional pension plans)
•  Defined contribution plans (such as 401(k) plans)
•  Employee stock ownership plans (ESOP)
•  Keogh plans

Section 403(b) plans, which you might have access to if you’re a public school or tax-exempt organization employee, mimic some of the characteristics of qualified retirement plans. But because of the way employer contributions to these plans are taxed the IRS doesn’t count them as qualified plans. The same is true for section 457(b) plans, which are available to public employees.

Defined Benefit vs. Defined Contribution Plans

When talking about qualified retirement plans and how to use them to invest for the future, it’s important to understand the distinction between defined benefit and defined contribution plans.

ERISA recognizes both types of plans, though they work very differently. A defined benefit plan pays out a specific benefit at retirement. This can either be a set dollar amount or payments based on a percentage of what you earned during your working career.

This type of defined benefit plan is most commonly known as a pension. If you have a pension from a current (or former) employer, you may be able to receive monthly payments from it once you retire, or withdraw the benefits you’ve accumulated in one lump sum. Pension plans can be protected by federal insurance coverage through the Pension Benefit Guaranty Corporation (PBGC).

Defined contribution plans, on the other hand, pay out benefits based on how much you (and your employer, if you’re eligible for a company match) contribute to the plan during your working years. The amount of money you can defer from your salary depends on the plan itself, as does the percentage of those contributions your employer will match.

Defined contribution plans include 401(k) plans, 403(b) plans, ESOPs and profit-sharing plans. With 401(k)s, that includes options like SIMPLE and solo 401(k) plans. But it’s important to note that while these are all defined contribution plans, they’re not all qualified retirement plans. Of those examples, 403(b) plans wouldn’t enjoy qualified retirement plan tax benefits.

What Is a Non-Qualified Retirement Plan?

Non-qualified retirement plans are retirement plans that aren’t governed by ERISA rules or IRC Section 401(a) standards. These are plans that you can use to invest for retirement outside of your workplace.

Examples of non-qualified retirement plans include:

•  Traditional IRAs
•  Roth IRAs
•  403(b) plans
•  457 plans
•  Deferred compensation plans
•  Self-directed IRAs
•  Executive bonus plans

While these plans can still offer tax benefits, they don’t meet the guidelines to be considered qualified. But they can be useful in saving for retirement, in addition to a qualified plan.

Traditional and Roth Individual Retirement Accounts

Traditional and Roth IRAs allow you to invest for retirement, with annual contribution limits. For 2020 and 2021, the maximum amount you can contribute to either IRA is $6,000, or $7,000 if you’re over 50.

Traditional IRAs allow for tax-deductible contributions. These accounts are funded using pre-tax dollars. When you make qualified withdrawals in retirement, they’re taxed at your ordinary income tax rate. IRAs do have required minimum distributions (RMD) starting at age 72.

Roth IRAs don’t offer the benefit of a tax deduction on contributions. But they do allow you to withdraw money tax-free in retirement. Unlike traditional IRAs, Roth IRAs do not have RMDs, meaning you don’t have to withdraw money until you want to.

A self-directed IRA is another type of IRA you might consider if you want to invest in stock or mutual fund alternatives, such as real estate. These IRAs require you to follow specific rules for how the money is used to invest, and engaging in any prohibited transactions could result in the loss of IRA tax benefits.

Advantages of Qualified Retirement Plans

Qualified retirement plans can benefit both employers and employees who are interested in saving for retirement.
On the employer side, the benefits include:

•  Being able to claim a tax deduction for matching contributions made on behalf of employees
•  Tax credits and other tax incentives for starting and maintaining a qualified retirement plan
•  Tax-free growth of assets in the plan

Additionally, offering a qualified retirement plan, such as a 401(k), can also be a useful tool for attracting and retaining talent. Employees may be more motivated to accept a position and stay with the company if their benefits package includes a generous 401(k) match.

Employees also enjoy some important benefits by saving money in a qualified plan. Specifically, those benefits include:

•  Tax-deferred growth of contributions
•  Ability to build a diversified portfolio
•  Automatic contributions through payroll deductions
•  Contributions made from taxable income each year
•  Matching contributions from your employer (aka “free money”)
•  ERISA protections against creditor lawsuits

Qualified retirement plans can also feature higher contribution limits than non-qualified plans, such as an IRA. If you have a 401(k), for example, you can contribute up to $19,500 for the 2020 and 2021 tax years, with an additional catch-up contribution of $6,500 for individuals 50 and older.

If you’re able to max out your annual contribution each year, that could allow you to save a substantial amount of money on a tax-deferred basis for retirement. Depending on your income and filing status, you may also be able to make additional contributions to a traditional or Roth IRA.

Making Other Investments Besides a Qualified or Non-Qualified Retirement Plan

Saving money in a qualified retirement plan or a non-qualified retirement plan doesn’t prevent you from investing money in a taxable account. With a brokerage account, you can continue to build your portfolio with no annual contribution limits. The trade-off is that selling assets in your brokerage account could trigger capital gains tax at the time of the sale, whereas qualified accounts allow you to defer paying income tax until retirement.

But an online brokerage account could help with increasing diversification in your portfolio. Qualified plans offered through an employer may limit you to mutual funds, index funds, or target-date funds as investment options. With a brokerage account, on the other hand, you may be able to trade individual stocks or fractional shares, exchange-traded funds, futures, options, or even cryptocurrency. Increasing diversification can help you better manage investment risk during periods of market volatility.

The Takeaway

While a qualified retirement plan allows investors to put away pre-tax money for retirement, a non-qualified plan doesn’t offer tax-deferred benefits. But both can be important parts of a retirement saving strategy.

Regardless of whether you use a qualified retirement plan or a non-qualified plan to grow wealth, the most important thing is getting started. Your workplace plan might be an obvious choice, but if your employer doesn’t offer a qualified plan, you do have other options.

Opening a traditional or Roth IRA online with SoFi Invest®, for example, can help you get a jump on retirement saving. Members can choose from a wide range of investment options or take advantage of a custom-build portfolio to invest.

Find out how an online IRA with SoFi might fit in to your financial plan.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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3 Reasons to Set Up a Donor-Advised Fund to Maximize Your Charitable Tax Deductions

Using donor-advised funds is a more advanced tax strategy that has gotten more popular recently with the introduction of the Tax Cuts and Jobs Act (TCJA) in February 2020. The TCJA nearly doubled the amount of the standard deduction, which makes it less advantageous to itemize deductions such as charitable contributions. For people with a lot of charitable contributions, donor-advised funds are one option to still get a deduction for charitable contributions.

What is a donor-advised fund?

A donor-advised fund (DAF) is a registered 501(c)(3) charitable organization that accepts contributions and generally funds other charitable organizations. While the concept of a donor-advised fund has been around for nearly 100 years, they were typically only used by the ua-wealthy. And while it is true that donor-advised funds are still not going to be useful for the vast majority of people, recent tax law changes have made their use more prevalent.

You can set up a donor-advised fund with most brokerages, including Fidelity, Vanguard, and Bank of America. You can donate cash, securities, or other types of assets to the DAF. The exact list of assets eligible for donation depends on the brokerage. After you have contributed, you can then make charitable contributions from the balance of your account.

You can maximize your charitable tax deductions in one year

One common reason that people set up donor-advised funds is to maximize their charitable tax deductions in a particular tax year. To show why this can be beneficial, I’ll use an example:

Our example family files their taxes married filing jointly and has regular charitable contributions of $20,000 per year. The standard deduction in 2020 for married filing jointly is $24,800. Because their amount of charitable deductions is less than the standard deduction, they may not see any tax benefit from their charitable contributions (depending on their amount of other itemized deductions). In 2021 they again plan to contribute $20,000 to charitable organizations and again are unlikely to see any tax benefit from doing so.

Now consider this same family now decides to set up a donor-advised fund in 2020. They have extra money sitting around in low-interest savings or checking account or in a taxable investment account. So they set up a donor-advised fund in 2020 and fund it with $40,000 in cash, stocks, or other assets. They are eligible to take the full $40,000 as an itemized deduction, even if they only use $20,000 to donate to the charity of their choice. Then in 2021, they can donate the remaining $20,000 to their preferred charity. They will not be able to deduct any charitable contributions in 2021 but can instead take the raised standard deduction amount.

You may be able to deduct the full value of stocks or other investments

Another reason you might want to set up a donor-advised fund is that you may be able to deduct the full value of stocks or other investments. Again, I’ll use an example to help illustrate the point.

Let’s say that you have shares that you purchased for $20,000 that are now worth $50,000. Many charities, especially smaller organizations, are not set up to accept donations of stocks or other investments. So if you want to donate that $50,000 to charity, you may have to liquidate your shares. This will mean that you will have to pay tax on the proceeds.

With a donor-advised fund, you can donate the shares to your fund and deduct the full fair market value of your shares. Then the fund can make the contribution to the charity of your choice.

Donate a wide range of assets

Another benefit to setting up a donor-advised fund is the ability to donate a wide range of different classes of assets. As we mentioned earlier, many charities are not set up in such a way to be able to accept non-cash donations. While the exact list of assets that a donor-advised fund can accept varies by the firm running the fund, it generally will include more types of assets than a typical charity.

Why you might not want to set up a donor-advised fund

While there are plenty of advantages to setting up a donor-advised fund, there are a few things that you might want to watch out for.

  • It’s definitely more complicated than just making charitable contributions on your own. You may find that the tax savings are not worth the extra hassle.
  • On top of the added layer of complexity, most firms with DAFs charge administrative fees that can cut into your rate of return.
  • You may be limited on the charities that you can donate to. Each donor-advised fund typically will have a list of eligible charities. So you may find that a charity that you want to donate to is not available.
  • You also lose control over the funds that you donate – the donation to the fund is irrevocable, meaning once you’ve donated to the fund you cannot get the donation back. While most advisors state that they will donate the money as you direct, they are not legally required to do so.
  • The money in a DAF is invested, so it may lose value. That means that the amount you were hoping to donate may be less than you were anticipating. You also typically have a limited range of investments available for your investment, and those funds also often come with fees.

It’s also important to keep in mind, the annual income tax deduction limits for gifts to donor-advised funds, are 60% of Adjusted Gross Income for contributions of cash, 30% of AGI for contributions of property that would qualify for capital gains tax treatment; 50% of AGI for blended contributions of cash and non-cash assets.

The post 3 Reasons to Set Up a Donor-Advised Fund to Maximize Your Charitable Tax Deductions appeared first on MintLife Blog.

Source: mint.intuit.com

What Is the Average Used Car Loan Rate?

average-used-car-loan-rate

Article originally published July 13th, 2016. Updated October 30th, 2018.

More people are opting to lease their new set of wheels instead of purchasing them, according to Q2 2018 data from Experian.

The number of auto loans grew to an all-time high, with leasing surpassed 30% of all new consumer vehicle sales. But the interest rates consumers are getting on these loans has stayed low, especially for used cars. In fact, Experian reported that average loan rates saw some increases, but still remain historically low.

Loan rates for a new car in Q2 of 2018 were 5.76%, up from 5.20% a year prior. Franchise used rates are 8.28% (down from 7.88% in Q2 2017), while independently used rates are 11.87% (down only 0.17% from Q2 2018).

The Experian Automotive scoring deems prime consumers as those with scores of 661 to 850, nonprime users with scores of 601 to 660, and subprime users as those with scores of 300 to 600. Consumers on all risk tiers are increasingly choosing to lease over purchasing cars, according to the report.

The number of prime consumers choosing used vehicles increased from 55.61% in Q2 2016 to 55.79% in Q2 2018. The number of nonprime and subprime consumers also saw increases, from 21.75% to 22.05% and decreases of 25.71% to 25.05%, respectively.

Experian reported that the increased number of prime consumers choosing used vehicles resulted in “score increases, greater percentages of used financing in the prime risk tier and lower average used rates.”

Getting a Car Loan

If you’re thinking about buying a used car and taking out an auto loan to do it, it’s a good idea to review your credit first. Having a good credit score can help you qualify for better terms and conditions on your financing. (To find out where your credit stands, you can see two of your credit scores for free, updated every 14 days, on Credit.com.)

And when you’re figuring out how much you can afford, remember to consider not only how much your monthly car payment will be but also how much the loan will cost you in the end, by considering the interest rate and length of the loan term. (The longer the loan term, the more interest you will pay.)

If you aren’t happy with what you see, don’t worry — you may be able to improve your credit scores by paying down any big credit card balances, disputing errors and limiting credit inquiries until your score has had time to rebound.

Gather All Documentation

When attempting to get a used car loan, you will want to gather all the necessary documentation including the following:

  • Your Driver’s License
  • Proof of all of your income- this can be a paycheck stub or even a tax return
  • A utility or phone bill to prove your residency
  • Your social security number so they can run your credit check

These days, you can often apply for the used car loan right online or even by phone which makes it the process that much easier and accessible.

Start With Your Own Banking Institution

It is always a good idea to start with your own bank or credit union for financing because you have already established history and relationship with them. Typically, you will be able to find the absolute best rates and more favorable terms if you go through your own bank.

They will also be able to advise you on all the options that are available to you as you begin the journey toward car ownership.

Shop for the Best Rates

You never want to settle on the first rate you are given; don’t be afraid to shop around to see if you can find something better than the typical auto loan rates. You will find the best auto loan rates if you have good credit. Additionally, if you apply for multiple loans within a 14 day period, it will only count as one hard inquiry so that you can find the best rate possible.

What is the Average Used Car Loan Rate?

Typically, you will find that the car loan rate on a used car is going to be a bit higher than the rates you would find with a newer car. For example, good credit car loans can see an interest rate as low as 3.9% for a newer model and a little more than 5% for its older version.

Average Auto Loan Rates by Credit Score

The following are the average rates you may find for a used car loan that carries a 60-month repayment term based on a range of different FICO Scores.

With a credit score between 500 and 589, you may be looking at interest rates on the loan as high as 16%. A bad credit score also makes it a lot harder to get approved for the car loan initially as well.

A credit score in between 590 and 619 will typically see the 15% mark, and the percentages get lower from here with the lowest coming in at 4.39% with a credit score between a 720 and 850.

A longer loan term will usually mean you will have a lower monthly payment, but you will also accrue more in interest with a longer loan term.

Bottom Line

When determining the average used car loan rate and the amount of interest you may have to pay on a loan, you will want to check all three of your credit reports, examine your credit score and credit history and determine what steps you can take to improve your credit, so you can qualify for a lower interest rate.

Again, if you bank with a credit union, always start there first because the lender will already be able to see if you are high risk or not. Car buyers should always take their time, do their research, and tackle the work of fixing their credit prior to obtaining a loan for a car. It is always best to shop smarter and save money in the long run.

The post What Is the Average Used Car Loan Rate? appeared first on Credit.com.

Source: credit.com

Store Brand vs. Name Brand: How to Save Money on Everyday Stuff

Editor’s note:  This post was originally published in February 2020.

What’s in a name? A lot actually.

We often default to certain brands when shopping simply because of the name on the package — and the reputation that comes along with it, thanks to clever advertising.

We buy Bounty paper towels because they’re the “quicker picker-upper” and Frosted Flakes because “they’re gr-r-reat.”

But on the shelves next to those items you can often find a comparable store-brand version that costs less — sometimes significantly less. We often refer to these as generic products. Sometimes these rival versions are even made in the same manufacturing facilities and have little to no noticeable differences.

Ultimately, the decision to buy a store-brand product or your favorite name brand is a subjective one. There’s trial and error involved, and in some cases you might land right back on the premium paper towels because you find that they really do pick more up, and quicker.

But before your next shopping trip, it’s worth considering how much money you could save if you take a few name brand items off your list.

Comparing the Cost of Store Brand Vs. Name Brand

I visited two stores — Publix (a southeastern grocery store chain) and Walmart — to do a little price comparison.

(Note: Prices were sourced on Feb. 19, 2020 at stores located in St. Petersburg, Florida. Sales tax was not factored into this example.)

Product Store Brand at Publix Name Brand at Publix Store Brand at Walmart Name Brand at Walmart
Oreos $2.59 $3.89 $1.63 $2.72
Jif peanut butter $2.39 $2.72 $1.58 $2.22
Cheerios $1.93 $4.19 $1.23 $2.82
Kraft cheddar cheese $3.85 $4.19 $2.08 $2.38
Diet Coke, 2-liter $0.75 $2.19 $0.68 $1.74
Dove body wash $3.99 $6.81 $3.47 $5.58
Adult extra-strength Tylenol $6.99 $10.29 $1.98 $9.47
Children’s Motrin $4.99 $7.49 $3.94 $5.97
Total $27.48 $41.77 $16.59 $32.90

A shopper at Publix would save $12.72 or about 35% by buying the store-brand version of these eight items over their name-brand alternatives. A shopper at Walmart would save $13.10 or nearly 45%.

Consider that I only used eight items in this example. When’s the last time you went to the grocery store and walked away with just eight things?

The greater the grocery haul, the greater the savings by choosing the cheaper alternative. And since you likely go shopping more than once a month, you could see a significant difference in your monthly budget by swapping out name-brand items.

Store Brand Vs. Name Brand: How to Decide

Since store-brand merchandise costs less money than name-brand counterparts, a common perception is that they’re of lesser quality.

But that’s not always true.

One reason name-brand items are more expensive is because it costs money to market those products to the public. Consumers pay the price for those commercial jingles that stick in their heads.

Most store-brand products are made to closely compare to their name-brand products. If you check the ingredients, sometimes you’ll find they’re made of the exact same stuff — though the recipes may differ slightly. What the decision really comes down to is preference.

We asked The Penny Hoarder community members about buying store-brand items over name brand. Respondents said they often choose store-brand products to save money but still have name-brand preferences when it comes to certain items, despite any cost savings.

“I will use generic for anything but my hair products,” said community member KellyFromKeene.”Otherwise, [with] food, clothes [and] household supplies, I will get the generic if the ingredients are the same.”

Community member Jobelle Collie said she’s partial to Dove bar soap, Olay moisturizer and Palmolive green dishwashing liquid but buys generic trash bags, office supplies and kitchen staples like salt, pepper and sugar.

Sometimes going with the store brand is a matter of trial and error.

“I definitely try to choose store brand, at least initially. Sometimes, I can tell the difference,” said community member Sthom. “For example, I tried my store’s brand of filters for my Brita: I could tell the difference immediately, so I switched back. That happens sometimes.

“Recently, I tried my store’s brand of peanut butter,” Sthom continued. “I’m partial to smooth [Jif] but the store’s organic smooth brand was less than $2.00 — around $1.18, unbelievably — and was just as good if not better.”

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Tips for Weighing Store Brand vs. Name Brand Products

When deciding between store brand and name brand, keep these things in mind:

  1. Try swapping out the name-brand version of single-ingredient items — like flour, rice, milk and eggs — for the store-brand version. You may find there’s less variation in taste or quality than multi-ingredient items like cookies or soup.
  2. Use spices or other ingredients you have at home to dress up a store-brand product — for example, adding basil and garlic to a jar of pasta sauce.
  3. All store brands aren’t created equal. You may dislike the taste of store-brand cereal or the quality of store-brand toilet paper at one grocer, but another store’s products could be more on par with the name brands.
  4. The U.S. Food and Drug Administration requires generic medications (over-the-counter and prescription) to have the same active ingredient, strength and dosage form as the name-brand equivalent. Both products should be medically equal.
  5. Store sales and coupons can cause name-brand products to cost less than the store version. Store brands aren’t always the cheapest option. This is a great time to indulge in your preferred brand and save money.

Nicole Dow is a senior writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com